February, 2013

Do you have the tax code 944L? If so, you’re not alone. 944L is one of the most common tax codes in the 2013-14 tax year and will apply to you if you receive the full Personal Allowance. It may also apply to you if you’re on an emergency tax code.

Keep reading to find out everything you need to know about tax code 944L – the new tax code for 2013/14.

Tax code 944L

Does your tax code feature numbers and the letter ‘L’? If so, it means that you are eligible for the basic Personal Allowance in the 2013-14 tax year.

Your Personal Allowance is the amount of money you’re allowed to earn each year before you pay tax. In the 2013/14 tax year the Personal Allowance increases from £8,105 to £9,440 as part of the government’s pledge to increase the Personal Allowance to £10,000.

This means that you are able to earn £9,440 before you start paying income tax.

If your tax code ends in the letter ‘P’ it means that you are aged 65 to 74 and eligible for the full Personal Allowance (£10,500 in the 2013/14 tax year). If your tax code ends in ‘Y’ it means that you are aged 75 or over and eligible for the full Personal Allowance (£10,660 in the 2013/14 tax year).

How you work out your tax code

Working out your tax code is a four step process:

Add up all your tax allowances – this will include your Personal Allowance and any other allowances you are eligible for (for example age related allowances or Blind Person’s Allowance)

Add up your deductions (all the income you have not paid tax on) – this can include income from a second job, savings interest or company benefits

Subtract your deductions from your allowances

Divide this number by ten and add the letter which fits your personal circumstances

For example, in the 2013/14 tax year you may qualify for the basic Personal Allowance and have no deductions. This means your tax code would be 944L.

Your tax code means that the amount of tax free earnings you are entitled to is spread equally throughout the year. This results in you receiving roughly the same amount of take home pay (or pension) every week/month.

Emergency tax code 944L

Sometimes, HMRC will issue you with an emergency tax code. This happens when they don’t have enough information about you to send your pension provider or employer your correct tax code.

An emergency tax code will ensure that you receive the basic tax free Personal Allowance. However, it doesn’t take any other allowances into account.

The emergency tax code changes each year and is a number followed by the letter ‘L’. In the 2013/14 tax year, the emergency tax code is 944L

Bear in mind that if you do have the tax code 944L it doesn’t necessarily mean that you are on an ‘emergency’ tax code. While the emergency tax code for 2013-14 is 944L, if you have this code it doesn’t automatically mean that you’re on an emergency code.

A lot has been written recently about tax avoidance by multinational companies. Amazon, Google and Starbucks have been hauled before the House of Commons Public Accounts Committee and not acquitted themselves well. At least Google’s Eric Schmidt had the courage to say that he was proud to pay so little tax.

The UK is not on its own – Amazon has been badgered into paying sales tax in a number of US states. But as the most internet-orientated major economy, the UK has been the hardest hit and also has a massive hole in the public accounts to fill.

Why something needs to be done about it?

Why do we need to recover tax from these giants? And what about UK giants like Vodafone and British Sugar, the latter of which is avoiding tax in Zambia that would make so much difference to that struggling economy. It may well be under the current international mess dealing with taxation, only companies that use such aggressive tax avoidance schemes are able to become global players.

The problem is not one of morality. Of course big companies working world-wide will do what they can to avoid paying tax. We would all do the same. So rather than crying foul and ‘not fair, not fair, not fair’, instead of pushing the country into triple-dip recession by cuts to the poor in particular, the Chancellor would be well advised to realise it is not so much government spending that is the problem but government income.

It has been estimated that tax avoidance costs the UK about £25 billion a year. That is an awful lot of money. Just to put it in perspective, corporation tax in the UK raises about £50 billion so if all the tax avoided was also collected, the total would be increased by 50%. Or the base rate of corporation tax could be substantially reduce. And that’s not counting the estimated £70 billion a year of tax evaded in the UK. These are far, far more important than tracking down the 0.7% of benefit fraud.

The raw fact is that Amazon is able to undercut any domestic competition not only because if its size but because it pays only about 2.5% tax. Similarly, Google pays 0.4% and Starbuck pays nothing at all. And these are the ones that have been named and shamed. How can home-grown companies, which have no option but to pay full corporation tax, compete with this? Is the government prepared to accept the possibility that domestically grown business may shut down and everything could be run from tax havens? Because that is the logical outcome of inactivity, which has been going on for some years now but has recently increased particularly with online business.

There is no excuse for inefficient spending in our public services but, more than equally, there is no excuse for inefficient laws and practices at HMRC. Isn’t it much better to try to collect the tax avoided, as well as that evaded and unpaid, than to drive people into more poverty?

So here is a suggestion…

Devise a Withholding Corporation Tax to be applied to all companies with a worldwide turnover above (say) £100million – we really don’t want to hit the small guys with this. This tax should be based either on the agreed UK component of turnover – not profit you notice – or the actual net VAT paid if that is paid at all (for example medical services are exempt and supplies are zero rated). The basis may be, say, the greater of 10% of UK turnover and 25% of net VAT. Special allowances such as R&D could be set against this so research-intensive companies may pay no WCT.

The rest of the corporation tax that will be due after the accounts are actually submitted will take into account any WCT already paid. Where companies are unable – or unwilling – to produce UK-specific data, the law must include powers for HMRC to estimate the amounts. Possession is 9/10th of the law so it will be up to the companies to prove that they have not in fact made such a profit in the UK.

If companies are using Luxemburg or Ireland to supply, then they must include the exported supplies in the equivalent of the VAT100 form. Electronically delivered goods should of course be taxed at the level of the country to which the goods are delivered so separate account may be made for these. This is even true for companies trading from outside the EU – they should be VAT registered and submit the tax gathered to the appropriate national body although this is difficult to police.

By initiating this sort of legislation, not only would the government collect more taxes but as this is an EU problem it would promote collaboration to ensure that the data are made available to the appropriate national authorities.

There is one subtle advantage to this, one that was enjoyed in 1944 when Pay As You Earn was introduced – the government would get a substantial portion of corporation tax a whole year earlier. Just as we were bankrupt during WW2 and PAYE helped at a critical time, this once-off income would be big boost in these times.

Finally…

It really seems a no-brainer but then if there is little brain available in the first place, we should not be surprised that little has been done. It is far easier to demonise single parents, the unemployed, immigrants or public service workers.